Supermarket sales fell back into the red following a 0.1 per cent increase in Q3 though the fall in general merchandising was offset by a five per cent lift in sales of its Tu clothing range and a seven per cent increase in online grocery and convenience stores respectively.

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Sainsbury's noted in the Q4 update the impact of cost price pressure “remains uncertain” but added it was “well placed to navigate the external environment” and said it remains “focused” on delivering on its strategy.

The Argos business boosted overall trading with like-for-like sales up 4.0 per cent in Q3 and to 4.3 per cent in Q4.

Annual profits will include six months of trading from the Argos business.

The group announced earlier in April plans to accelerate the roll-out of in-store Argos outlets with a commitment to open 250 Argos concessions in its supermarkets within three years with the longer term aim of having an Argos store-in-store or a click and collect point in every Sainsbury's store.

Sainsbury's recently opened its 50th Argos outlet and also plans to transform 60 stand-alone Argos stores to a digital format and bolster the number of mini-Habitat stores in its supermarkets from seven to 17.

Analysts are forecasting Sainsbury's will post underlying annual pre-tax profits of around £578m, including Argos, though Jefferies said its forecasts point to a 15 per cent decline in earnings in the second half when trading from Argos is stripped out.

Sainsbury's has lagged behind rivals Tesco and Morrisons in recent months, with the most recent Nielsen supermarket figures showing its share of the market fell 0.4 per cent to 15.4 per cent in the 12 weeks to March 25.

Analysts have also raised concerns the Argos acquisition leaves Sainsbury's exposed to a possible consumer spending downturn with the weak pound forcing inflation higher and with it prices on imported goods and input costs, notably fuel and energy.

Jefferies said: “Strong progress at Argos in recent months only partly moderates the cyclical risks attached to the acquired business. “In reality, it is under-performance in food sales in the core supermarket chain that is more of a concern.”

Meanwhile, Morrisons is expected to report steady sales growth when it releases first quarter results on Thursday, despite the sharp rise in inflation since the turn of the year.

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Like-for-like sales growth is expected to reach 1.7 per cent in the first quarter, according to Jefferies, while Shore Capital forecasting an increase of between 1.75 per cent to 2.0 per cent over the period.

Analysts believe Morrisons is better positioned to handle a tougher trading environment than some of its rivals.

“A number of industry sources have confirmed a step up in food prices in recent weeks,” Jefferies said in a research note led by equity analyst James Gzinic.

Gzinic pointed to the British Retail Consortium's (BRC) most recent survey, which showed food inflation rose from minus 0.8 per cent in January to 1.0 per cent in March.

The ONS said inflation from the lower value of the pound against other currencies also served to lift shop prices 3.3 per cent on last year - the fastest rate of increase since March 2012.

The fall in the value of the pound since the UK's vote to leave the EU last June has pushed inflation up to 2.3 per cent and inflation remained at this rate in March – ahead of the Bank of England's two per cent inflation target.

The ONS said fuel prices have risen 16.4 per cent over the year.

Jefferies expects Morrisons' first quarter results “to confirm this industry trend, but also for the business to have made positive progress in like for like volume terms (something that we do not expect others to be enjoying at this juncture)”.

In March Morrisons reported a 49.8 per cent jump in pre-tax profits to £325m as group turnover rose 1.2 per cent to £16.3m, “despite store closures”.

It said: “If we do not engage with our suppliers and effectively manage our trade plan to remain competitive there is a risk that we will not achieve our financial targets.”

Shore Capital's director and head of research Clive Black said Morrisons chief executive David Potts' efforts are starting to bear fruit.

He said: “Morrisons is in much better shape than it has been for some considerable time.

“We believe that David Potts and his team deserve considerable praise for the stabilisation of the business and now entry into what we believe is a period of growth-on-growth”

Black believes Morrisons “has a stronger all-round proposition with which to compete to our minds with sharper prices, a better quality private label assortment and a stronger service commitment in-store”.

However, he admitted that there is still room for improvement.

“Mr Potts & Co's work is not done,” he said.

“There remains a lot of fixing still to do with many stores to be refreshed, with the range reviews and improvements an ongoing process, whilst broadening the business towards the £50-100 million of guided incremental profits feels to us that it is early doors.”